Are you a trader interested in trading commodities but in the decentralized market?
What if I tell you that you can trade commodities in forex and enjoy good profit? Yes, you heard it right. One can also trade commodities with currencies in the world of foreign exchange.
Confused? Not to worry. In this blog, we will discuss forex commodity trading with examples and the best commodities to trade in.
The advancement of technology has made forex scams unidentifiable, especially for new traders. Thus, in this blog, we will have a detailed study of Fx scams and tips to avoid them.
Introduction to Forex Commodity Trading
Commodities and forex currencies are the two popular financial instruments globally. Commodities can be defined as raw materials or goods that people consume or exchange to meet their needs.
Meanwhile, currencies can be defined as centralized money that is used to buy or sell goods and services within a geographical location.
Forex is the largest financial market where traders participate to take advantage of the currency’s price fluctuation. Traders trade in a range of forex pairs like EUR/USD, USD/CAD, GBP/JPY, AUD/USD, etc.
However, apart from currency pairs, traders can also trade in forex commodity pairs in the foreign exchange market. Forex commodity trading is quite similar to currency trading. For your better understanding, let us look at an example.
Suppose a trader feels that the price of silver is all set to rise. In this case, he can trade silver against the US Dollar or any other currency in the forex market. So, he opened a long position in the XAG/USD when the price was 25$.
In the above example, XAG or silver is the base asset, while USD is a quote currency. So, if the price of XAG/USD rises, the trader will make a profit or loss in the opposite scenario. That’s how a person can trade commodities against different currencies and make money.
Best Commodities to Trade in Forex
Commodities are of different types and have different market conditions. Beginners may struggle to identify the ideal commodities to trade in.
In order to help you out, here is the best Forex commodities list:
Forex and Metal Commodities
Metal or comex products are the most popular options for trading in the foreign exchange market. Traders can experience excellent liquidity, significant volatility and favourable market conditions while trading them.
In addition, many economies are heavily dependent on the export and import of metal products. Thus, traders can identify many trading opportunities while trading comex products against currencies. Here are the most popular metal commodities in forex:
A quick glance
Commodity forex trading is the buying or selling of a commodity against a forex currency and earns money from its value fluctuation.
Gold, silver, platinum, palladium, natural gas, and crude oil are some of the best and most profitable commodities to trade in forex.
XAU/USD, XAG/USD, XPT/USD, and WTI/USD are examples of popular commodity currency pairs.
Canadian Dollars, US Dollars, Australian Dollars, New Zealand Dollars, and Russian rubles have a strong correlation with the commodity market.
Gold, silver, platinum, Copper, palladium, nickel, aluminium, zinc, lead, cobalt, and lithium are some popular metal products to trade in forex.
Gold (XAU/USD):
XAU/USD is among the most popular, highly liquid, volatile forex pairs. Gold is already known as a safe haven asset, and its negative correlations with USD make it the best forex commodity to trade in.
Silver (XAG/USD):
Trading gold in the forex commodity market may require significant capital. So, beginners can also go for an XAG/USD pair. The wide usage of silver metal in different industries and global demand result in potential opportunities with limited capital.
Platinum (XPT/USD):
Platinum is another precious metal to trade in the forex market. Apart from jewellery, the metal is used to treat life-threatening diseases.
Other Metals:
Apart from the above metals, there are many different options for trading in forex. Many commodity brokers offer copper, palladium, nickel, aluminium, zinc, lead, cobalt, lithium, and other products to trade in. So traders can choose the right one that suits their interests.
Forex and Energy Commodities
Well, if you don’t want to trade in metal commodities, you can give energy commodities a try. Energy commodities include the products that run power, heat, automobiles, machinery and many other industries.
Energies products are popular all around the world with limited supply and great demand. Also, the prices of energy products saw a significant rise and fall, offering traders multiple opportunities. Here are the popular energy forex commodities to trade in:
Crude Oil:
Crude oil, known as petroleum, is among the popular commodities in forex. The increasing demand and extinct nature make it a popular option to trade in. Some economies are entirely dependent on crude oil exports. So, if you also want to trade in crude oil, you can go for US crude oil (WTI) or European crude oil (Brent).
Natural Gas:
According to research, Natural gas is a prominent energy source that is used to generate 20% of power supply. The energy product is used in different sectors, including domestic, fertilizers, manufacturing and other sectors.
Renewables Energies:
Renewable products are used to produce electricity and generate power. Forex traders can also choose renewable options like solar, wind, hydro, or geothermal energy.
Correlated Currencies:
Well, if you don’t want to trade in commodities directly, you can go for currencies of economies that are entirely depend on the commodity market.
The trade balance of a country determines the economic health and the strength of a currency. A high trade surplus is generally positive for a country. It is when a country earns a lot from commodity exports.
Thus, you can trade in Canadian Dollars, US Dollars, Australian Dollars, New Zealand Dollars, and Russian rubles. These are the currencies that have a strong correlation with the commodity market. So, you can take advantage of these correlations and trade them in.
Difference between Commodity trading and forex commodity trading
You must be wondering when you can trade commodities in the commodity market why would you trade them in the forex market? Well, there are reasons why many traders prefer forex over the commodity market for trading.
Let us compare both to find out which is better:
Conclusion
Commodities are a must when trading financial instruments, especially if you are a forex trader. However, one thing to remember here is that you need to pay the price to get amazing benefits.
Trading commodities in forex requires proper knowledge of both forex and commodity markets. In addition, a trader should have an appropriate strategy of trading, leverage and risk management plans, and the proper psychology. So keep these things in mind if you plan to start trading in forex commodities.